What You Must Know About Franchising

Are you ready for franchise ownership? Our expert gives you an inside look.

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Maybe you've thought it would be fun to own a business where you're building a household-name empire, running a restaurant or dealing with the latest developments in technology. But what is it really like to buy a big-name franchise, a restaurant franchise, even a tech franchise? We asked franchise consultant Jeff Elgin to reveal exactly what you need to know about buying...

A Big-Name Franchise

Most people equate franchising with ubiquitous mega-systems: the large fast-food franchises like McDonald's or Subway, hotel operators like Hilton, or other business-format franchises like 7-Eleven or ServiceMaster. These systems are big—really big—and they have advantages and disadvantages as franchise opportunities.

When you buy a franchise, you hope to receive at least two things: a valuable brand and a proven operating system. The primary advantage of big franchise companies is that both of these are basically set in place. You can research consumer awareness and attitudes about the brand simply by asking around. And you can determine the franchise's track record pretty easily by visiting its numerous franchisees who have been operating for a long time.

Another advantage is that large franchise systems can offer you safety and dependability. The risk of starting in a big franchise system is usually lower, because all the kinks in its system have long since been worked out. This doesn't mean you are guaranteed to succeed, but there's more certainty due to the wealth of information available about the current system and its operators.

Mega franchise systems can have disadvantages, too. Many large systems have already built so many units that getting approved to open a new unit as a new franchisee can be difficult. These systems tend to favor successful current operators for new unit expansion opportunities, because this approach is less risky than taking a chance on a new, unproven operator.

Often, you can enter a large system as a new franchisee by purchasing one or more existing units. This can actually be an advantage, since it allows you to review the operational and financial performance of the unit or units before you decide to buy them. Buying an existing business with profitable operations can be a major advantage over building a new business from scratch, since you avoid the losses associated with the initial startup process. As long as you make sure you're getting a good unit and not buying someone else's troubles, it can be a great opportunity. 

Another advantage of big systems is that the professionalism and expertise of the support staff, the supply chain and virtually every other system component is often far greater than what you can reasonably expect to find in a smaller, newer franchise system. This should allow you to avoid mistakes and potentially realize comparatively lower operating costs.

One possible disadvantage is that the larger a franchise system becomes, the more rules it has governing the conduct of existing franchisees. A large franchise system has determined and documented exactly how it wants the business to be run in every respect—from layout to operations to marketing. It's not looking for innovators to reinvent the wheel—it's looking for operators to execute its proven systems.

The really big franchise systems receive thousands of inquiries from prospective franchisees every month, and they don't have room to accommodate most of them. You may need to communicate your qualifications more aggressively to get a big franchisor's attention and for it to consider you as a potential franchisee. Whatever the challenges, the prize may be well worth going through the process.

Every franchise is seeking franchisees with the talent and capital to make their business a success. Whether big or small, most franchise companies care deeply about the success of all their franchisees. You can find just as much heart in a big company as in a smaller one. Take the time to look into a number of alternatives when you're contemplating franchise opportunities of any size and you're sure to find the right one to maximize your chances for success.